Australia and the IMF check list. The International Monetary Fund last night our time released its six monthly Global Financial Stability Report which included five principles it believes should guide the scope and design of measures that countries take to restore confidence “in these exceptional circumstances.” By these IMF measures it seems that the Rudd Government and the Australian Reserve Bank are doing things pretty much right.

The IMF’s first principle is to:

Employ measures that are comprehensive, timely, and clearly communicated. They should encompass the principal challenges arising from the strains of deleveraging: namely, improving funding availability, cost, and maturity to stabilize balance sheets; injecting capital to support viable institutions with sound underpinnings that are currently unable to provide adequate credit; and buttressing troubled assets by using public sector balance sheets to promote orderly deleveraging. In applying existing or new regulations, authorities should avoid exacerbating procyclical effects. The objectives of the measures should be clear and operational procedures transparent.

Last week Treasurer Wayne Swan moved to improve the availability of funding by providing loans from Treasury sources to major non-bank lenders that provide housing finance. It was a classic example of using the public sector balance sheet to advantage. Yesterday’s bold action by the Reserve Bank certainly qualified as being comprehensive and clear even if some would say that the reduction in official rates was a little belated.

The second IMF principle is:

Aim for a consistent and coherent set of policies to stabilize the global financial system across countries in order to maximize impact while avoiding adverse effects on other countries.

Our Prime Minister Rudd has certainly not needed any encouragement to tell the world’s leaders what he thinks should happen and Treasurer Wayne Swan is off today to an IMF meeting in the United States. As one of those countries that so far has escaped the most damaging impacts of the financial crisis it would hardly be appropriate for Australia to lecture the less fortunate.

Principle three:

Ensure rapid response on the basis of early detection of strains. This requires a high degree of coordination within each country, and in many cases across borders, and a framework that allows for decisive action by potentially different sets of authorities.

This is something Australia’s regulators did not need to be told to do. There has been a real effort over the last six months or so to coordinate the respective roles of the Reserve Bank, the Treasury, the Australian Prudential Regulation Authority and the Australian Securities and Investment Commission. This culminated in the signing back on 18 September of a formal memorandum of understanding between the quartet setting out who is to do what when it comes to “financial distress management.”

Principle four:

Assure that emergency government interventions are temporary and taxpayer interests are protected. Accountability of government actions is important for all stakeholders and the conditions for support should include private participation in downside risks and taxpayer participation in upside benefits. Intervention mechanisms should minimize moral hazard, while recognizing the exigency of the situation and the evident need for public support.

Real emergency intervention like bailing out a bank has not yet been necessary but in providing funding for housing lenders there is the likelihood that it will prove to be a profitable enterprise for the Treasury.

Principle five:

Pursue the medium-term objective of a more sound, competitive, and efficient financial system. Achieving this objective requires both an orderly resolution of nonviable financial institutions and a strengthening of the international macro-financial stability framework to help improve supervision and regulation at the domestic and global levels, as well as mechanisms to improve the effectiveness of market discipline. Funding and securitization markets critical to pricing and intermediating credit should be strengthened, including by reducing counterparty risks through centralized clearing organizations.

This is a major task to come when the immediate tumult and shouting declines.

Give us a break Malcolm. Now I know that all politicians have big egos. You couldn’t subject yourself to running for office if you didn’t. But fair dinkum! Malcolm Turnbull is right at the top of the political class. Trying to take the credit this morning for yesterday’s Reserve Bank interest rate cut being a full one percent rather than the anticipated half a point was just over the top. Can someone in the Liberal Party tell him to quieten down until the crisis is past? He’ll want a retrospective award for inventing sliced bread next.

Desperate politicians have to do desperate things. When a politician is staring at defeat there is no option but to try desperate things. Senator John McCain was in just that position as he went in to his second presidential campaign debate with Senator Barack Obama. The Republicans need something extraordinary to happen if they are not going to slide to an inglorious defeat. The problem with desperate campaigning, unfortunately, is that long shot winners are hard to find and the likelihood is that trying something completely different will make things worse rather than better. I expect the Democrats to end the day further in front than they started it.

The world coming to an end Read the front pages this morning and you might think the world as we know it is coming to an end in some kind of financial horror story. Have a look at the list of most read stories on our morning Crikey breakfast wrap and you would get a quite different impression. What is really interesting to Australian internet news readers is a Qantas aircraft dropping from the sky for an unexplained reason.